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Exam 11: Inventory

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Question 81

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In a perpetual inventory system, the cost of goods sold under the FIFO method is based on the cost of the latest goods purchased during the period.

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B) False

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Question 82

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The LCNRV basis of accounting for inventories should a201. Two widely used methods of estimating inventories are the ______________ method and the _____________ method.

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Question 83

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Companies adopt different cost flow methods for each of the following reasons except

A company just starting business made the following four inventory purchases in June: $\begin{array}{lll}\text { June } 1 &150 \text { units } & \$390\\\text { June } 10 & 200 \text { units } & 598 \\\text { June } 15 & 200 \text { units } & 630 \\\text { June } 28 & 150 \text { units } & 510 \\&&\$2,128\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using a periodic inventory system and the average-cost method, the amount allocated to the ending inventory on June 30 is

Accounting for inventories is important because inventories affect the ______________ section of the balance sheet and the ______________ on the income statement.

If companies have identical inventoriable costs but use different inventory cost flow methods when the price of goods has not been constant, then the

Talkington Rae Company reports goods available for sale at cost, $76,800. Beginning inventory at retail is $40,000 and goods purchased during the period at retail were $80,000. Sales for the period amounted to $85,000. Instructions Determine the estimated cost of the ending inventory using the retail inventory method.

If inventory is reported using the LIFO cost flow method, it should not be classified as a current asset on the balance sheet.

Allen's Hardware Store prepared the following analysis of cost of goods sold for the previous three years: Net income for the years 2021, 2022, and 2023 was $75,000, $60,000, and $57,000, respectively. Since net income was consistently declining, Mr. Allen hired a new accountant to investigate the cause(s) for the declines. The accountant determined the following: 1. Purchases of $20,000 were not recorded in 2021. 2. The 2021 December 31 inventory should have been $26,000. 3. The 2022 ending inventory included inventory costing $8,000 that was purchased FOB destination and in transit at year-end. 4. The 2023 ending inventory did not include goods costing $4,000 that were shipped on December 29 to Wilson Plumbing Company, FOB shipping point. The goods were still in transit at the end of the year. Instructions Determine the correct net income for each year. (Show all computations.)

Nicholas Industries had the following inventory transactions occur during 2022: $\begin{array}{llll}&&\text {Units}&\text { Cost/unit}\\\hline2 / 1 / 22 & \text { Purchase } & 54 & \$ 45 \\3 / 14 / 22 & \text { Purchase } & 93 & \$ 47 \\5 / 1 / 22 & \text { Purchase } & 66 & \$ 49\end{array}$ The company sold 140 units at $65 each. Assuming that a periodic inventory system is used, what is the company's gross profit using LIFO?

Tomas Company uses the perpetual inventory system and the moving-average method to cost inventories. On August 1, there were 10,000 units reported at $30,000 in the beginning inventory. On August 10, 20,000 units were purchased for $4.95 per unit. On August 15, 25,000 units were sold for $12 per unit. The amount charged to cost of goods sold on August 15 was

Henri Company's inventory and purchases accounts show the following data: $\begin{array}{llrr}&&\text {Units }&\text {Unit Cost }\\\hline\text { Inventory, } & \text { January 1 } & 10,000 & \$ 9.20 \\\text { Purchases: } & \text { June 18 } & 9,000 & 8.00 \\& \text { Novermber 8 } & 6,000 & 7.25\end{array}$ A physical inventory on December 31 shows 3,000 units on hand. Henri sells the units for $12 each. Henri uses the periodic inventory method. Under the FIFO method, the December 31 inventory is costed at

If a company has no beginning inventory and the unit cost of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the LIFO and FIFO inventory methods.

Oscar Industries has the following inventory information. $\begin{array}{rll}\text { July } 1 & \text { Beginning Inventory } & 40 \text { units at } \$ 110 \\5 & \text { Purchases } & 240 \text { units at } \$ 112 \\14 & \text { Sale } & 160 \text { units } \\21 & \text { Purchases } & 120 \text { units at } \$ 115 \\30 & \text { Sale } & 150 \text { units }\end{array}$ Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a FIFO basis?

In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.

The specific identification method of costing inventories is used when the

Agler Company suffered a loss of its inventory on March 28 due to a fire in its warehouse. As a basis for filing a claim with its insurance company, Agler Company compiled the following information: $\begin{array}{lr}\text { March net sales through March } 28 & \$ 350,000 \\\text { Beginning Inventory, March 1 } & 100,000 \\\text { Merchandise purchases through March } 28 & 180,000\end{array}$ The company has experienced an average gross profit rate of 35% in the past and this rate appears to Instructions Using the gross profit method, prepare an estimate of the cost of the inventory destroyed by fire on March 28. Show all computations in good form.

Inventory items on an assembly line in various stages of production are classified as

Transactions that affect inventories on hand have effects on both the balance sheet and the income statement.

The inventory amount has no effect on net income.